Union Budget 2017-2018 Review: Prabhudas Lilladher

Sticking to Fiscal prudence, the name of the game: Despite the demons of demonetisation resulting in reduced consumption and consequently slowdown in the economy, the fiscal deficit was maintained below the targeted level for FY17 at 3.2% and has targeted to maintain at 3.2% for FY18 and at 3.0% in FY19. The budget has focused on improving domestic growth through investments in agriculture, rural development and infrastructure  while letting the fiscal discipline and efficient tax administration intact.

Subsidies:  Fell in FY17 and is expected to remain muted in FY18 and net market borrowing expected to be at Rs 3480bn.

Direct & Indirect Taxes: No major changes have been made to indirect taxes as both the customs and excise duties are expected to increase in line with the nominal GDP growth. In case of direct taxes, corporate taxation is expected to grow in lines of GDP, while personal income tax expected to see a 24.9% increase. We expect the tax evaders in the watch list following the de monetization to contribute significantly to the delta.

Setting the stage for 2019 Election: FY18 budget is the story of (i) continuing the efforts to double the farmers income by 2020, (ii) increasing the employment and basic infrastructure in the rural areas, (iii) energizing the youth through education, improving skills and jobs, (iv) strengthening the systems of social security , healthcare and affordable housing for the poor and under privileged, (v) increasing the infrastructure for efficiency, productivity and quality of life, (vi) making the shift towards the digital economy through speed, accountability and transparency, (vii) efficient tax administration, (viii) having an effective governance and efficient service delivery through peoples participation, (ix) participate in growth with stability in stronger institutions and (x) have  prudent fiscal management.

GST Rollout: The stage is set for the roll out of GST by July 1, 2017, which should mark as a watershed event in the history of the country.

Our View: The proposals in the FY18 budget is nothing path breaking, it is a re-iteration of the rhetoric  that we have been seeing from the government and the Honorable Prime Minister in particular over the last one year. We see the budget more as a setting stage for the 2019 election as the current global economic factors leave little opportunities to stimulate an exports led growth. Hence all the focus is on the improving the domestic economy especially in the rural areas with clear focus towards the farmers, poor and the under privileged and infrastructure with increased stress on an efficient tax administration while maintaining fiscal prudence.